Oil, extractives, tobacco, arms and alcohol are the industries which come to mind as contentious sectors. We don’t typically think of consumer food and toy companies. When we think of the consumer food industry we think of sustenance, companies that bring food to our tables.
However, the food industry has been faced with growing concerns about its negative impacts on water supply, climate change, and waste, not to mention its role in the growing obesity epidemic in the United States. With the toy industry we think of the joy the toys bring to our nation’s children. But recently we are associating toys with dangers of lead paint and even a “date rape” drug. In the framework of corporate responsibility for these sectors, there has been relatively little focus on product safety because it seemed that food and toy companies’ safety policies and procedures were well-managed. However, over the past few years both sectors have had more and more recalls and consumers are concerned.
In the US food sector products have been taken off the shelves from both imported and domestic producers of a range of products including shrimp, meat and poultry, spinach, animal food and toothpaste. Most major US food companies including Tyson Foods, ConAgra Foods, United Food Groups, Kroger, and Sara Lee have issued recalls.
They toy sector has also had its fair share of problems. In 2007, the US Consumer Product and Safety commission has cited more than 70 recalls totaling more than 25 million products from major toy companies including Mattel and Fisher Price. The recalls have been due to flaws in the product design, and lead paint used by the manufacturers. Most recently a new toy called Aqua Dots was pulled off the shelf because a chemical in the dots produced the “date rape drug”, GHB, when ingested.
There are a variety of factors that cause the problems resulting in the products being taken off the shelves. But outsourcing the manufacturing and managing the supply chain is a primary factor. With the growing number of products being sourced overseas, US companies have very little control over the production. While there are supplier codes of conduct, they have been difficult to enforce and fraught with problems. In many cases suppliers are hiring sub-contractors to help fill the orders and the brands have even less control over those sub-contractors, making quality and safety even more difficult to monitor.
Another factor contributing to the product recalls is the American desire for a bargain. Suppliers look for ways to reduce costs, often using inferior material, and the product’s quality suffers.
The impact of a recall can be significant to a business. It can not only affect its profitability, but it can also damage its reputation. Mattel, a company, which is known for having strong corporate responsibility, high product safety standards and is pro-active in monitoring its supply chain has taken a beating this past year with 11 different recalls. While not all the recalls were due to supplier errors, if we assess the damage of just two of the recalls – 17.4 million pieces were taken off the shelf for a design flaw, which could harm children, and additional 2.2 million pieces were recalled because of impermissible levels of lead in paint.
Mattel’s pre-tax operating income will be cut this year by $30m and Mattel’s share price dropped from a 52-week high at $29.71 to a low of $19.62. In addition, Mattel has been considered a strong, trust worthy company with a history of doing the right thing to ensure product safety. In each recall Mattel acted quickly, taking the products off the shelves and offering rebates to the consumer. But with so many recalls in one year, it is uncertain the full extent of what the impact will be on consumer behavior and Mattel’s reputation.
However, with articles like CNNMoney.com “Recalls scare parents away from hot toys” it is indicative that there is genuine concern among consumers and something has to change.
Recalls are a huge risk for food and toy companies that affect financial performance and damage reputation. The recent developments in food and product safety remind us that it is important for companies to have a holistic integrated corporate responsibility programme that incorporates all key issues. In the US, product recalls are voluntary, companies must ensure that consumer safety is their number one priority and this is understood throughout the business. A recall involving food and child safety is damaging because people can feel particularly vulnerable. The moment a problem is discovered the company should take the products off the shelves and should communicate this to the public. By acting quickly and responsibly a company can survive the crises and maintain consumer trust. And after all, isn’t CSR all about acting responsibly?
Jen Peckman is a consultant at the New York office of The Corporate Citizenship Company.
COMMENTS